Phoenix industrial vacancies have been down, according to one report, as another report sites high activity in Phoenix’s third-smallest industrial submarket, northwest Phoenix.

Colliers International

Colliers International in Greater Phoenix released its mid-year 2016 Industrial Market Report for Greater Phoenix, and found an increase in leases for the second quarter.

The Colliers report highlighted:

  • Industrial space users picked up the pace with leasing during the second quarter of 2016, bringing twice as many leases exceeding 50,000 sq. ft. than were signed in the first quarter. These completed, large leases will result in an uptick of approximately 1.5 million square feet in net absorption for the remainder of the year, according to Colliers.
  •  The Valley-wide vacancy rate for industrial space completed the quarter at 10.8 percent, 100 basis points lower than a year ago. Vacancy has remained rather flat so far in 2016 as a result of an increase in inventory levels from construction deliveries, according to Colliers.
  • The combination of strong tenant demand and healthy rental rate growth is supporting new development. Nearly six million square feet of new space will be added to the Phoenix inventory during 2016, according to Colliers.
  • Rental rates continue to rise and have advanced 7.8 percent in the past year, according to Colliers.
  • Investment sales of industrial buildings have increased, rising by more than 35 percent in the second quarter. Year-to-date, building sales are up nearly 20 percent from the same period in 2015. A broad base of product types is being acquired, which is a testament to the overall appeal of the Phoenix market, according to Colliers.

According to Colliers International of Greater Phoenix, the industrial market will remain in an expansion phase at least through the end of this year.

The industrial vacancy rate will drop to 10.6 percent by year-end, which marks a slight decline from the end of 2015. Approximately 6.7 million square feet of net absorption is forecasted for 2016, but the vacancy rate will level off at this point because of new properties being added to the inventory.

The balance of supply and demand at this point is near equilibrium. Asking rental rates will rise approximately 7.7 percent during this calendar year and have already increased 4 percent in the first half.

This follows a similar 7 percent increase experienced in 2015. Sales of industrial buildings are on pace to reach their highest point in nearly a decade. Competitive yields, low interest rates and improving property fundamentals will continue supporting investor demand.

JLL PHoenix

JLL Phoenix released its second quarter Phoenix update, stating that the northwest submarket, Phoenix’s third-smallest industrial submarket, is a region to keep an eye on.

The Northwest is Phoenix’s third-smallest industrial submarket behind 51 Corridor and Scottsdale, but it is posting big activity, attracting two of the largest owner-built facilities of the year:

  • REI — A 400,000 square foot fulfillment warehouse in Goodyear
  • IRIS USA — A 384,373 western regional headquarters in Surprise

Compared to the Southwest Valley, the Northwest provides a highly skilled labor force for companies focused on food and beverage, value-add assembly and manufacturing operations – all clients that are common in the Northwest Valley and much different than the traditional warehouse and distribution companies found in the Southwest market.

A quick comparison of two newly completed facilities (McLane Foods in the Southwest and IRIS USA in the Northwest) reveals the differences between the neighboring submarkets. The median household income within 5 miles of the McLane Foods facility is $39,295, with 15.1 percent of the population having an Associate’s degree or higher. The IRIS USA facility, in comparison, has a median household income of $48,054 within 5 miles (a 22 percent increase from the Southwest) and 31.1 percent of the population has an Associate’s degree or higher (nearly double that of the Southwest).

“We are on the cusp of seeing speculative development occur in the Northwest submarket. Thus far, the development we have seen has been corporate design build but as the submarket continues to grow, we expect to see spec developments that will attract midsize industrial users. Right behind that will be the development of space solutions for smaller operators. This is definitely an emerging market and it is exciting to see it grow,” said JLL Managing Director Anthony Lydon.